Apple's Rising R&D Expenses

Apple's Rising R&D Expenses

Often overlooked during Apple's current era of fast-paced growth in revenue and earnings is the company's rising  research and development expense activity. The company is known for developing popular and innovative products. The products come to market only after considerable amounts of time and resources are invested in development, engineering and design. These investments are the foundation of the company's success in growing revenue and increasing product appeal and popularity. 

From the iPhone to the iPad to the constant innovation of the Macintosh line of personal computers, Apple continues to invest heavily in product research and development. Over the past nine quarters, each quarter, the company has increased research and development expense activity. Although the percentage of revenue consumed by R&D expenses varies by quarter, the rate of increase in expense activity rose steadily through fiscal year 2010 and the first quarter fiscal year 2011.

			% of	Sequential	YOY	% YOY
	Quarter	R&D	Revenue	Rise	Rise	Rise
	FQ1 ’09	315,000,000	2.65%	17,000,000	69,000,000	28.05%
	FQ2 ’09	319,000,000	3.51%	4,000,000	46,000,000	16.85%
	FQ3 ’09	341,000,000	3.50%	22,000,000	49,000,000	16.78%
	FQ4 ’09	358,000,000	2.93%	17,000,000	60,000,000	20.13%
	FQ1 ’10	398,000,000	2.54%	40,000,000	83,000,000	26.35%
	FQ2 '10	426,000,000	3.16%	28,000,000	107,000,000	33.54%
	FQ3 ’10	464,000,000	2.96%	38,000,000	123,000,000	36.07%
	FQ4 ’10	494,000,000	2.70%	30,000,000	136,000,000	37.99%
	FQ1 ’11	575,000,000	2.20%	81,000,000	177,000,000	44.47%

The Pace of R&D Expense Growth

In fiscal year 2010 Apple's R&D expenses rose about 33.7% over the prior fiscal year. While the pace of R&D expense growth is below the pace of growth in overall revenue, reported R&D expenses in the fiscal year totaled $1.782 billion versus $1.333 billion in fiscal year 2009. In the first fiscal quarter of fiscal year 2011 (the recent December quarter), reported R&D expenses rose nearly 45% over the corresponding prior-year period. I expect R&D expenses to continue to rise as Apple broadens its consumer product portfolio and the number of product refreshes or upgrades increases on an annual basis.

Apple's Revenue and Expense Components

This post is among a series of posts examining Apple's revenue and expense components. For a more comprehensive look at Apple's rates of revenue, earnings and expense growth over the past two fiscal years, please see my December post titled Posts At Eventide Guide for Independent AAPL Analysts. 

Robert Paul Leitao